Capital Solutions

Understanding the Breadth of Investment Opportunities in Capital Solutions

May 2023 – 8 min read

Capital solutions constitute an increasingly popular investment category that seeks to provide equity-like returns with less correlated market risk throughout the credit cycle.

“Capital solutions” is a term that has become increasingly popular as a way for asset managers to describe flexible, often credit-focused strategies that provide investors access to unique or bespoke deal flow and investment opportunities. But it’s not always easy for investors to wade through a sea of varying definitions to get to the core of what a manager actually means when they describe their strategy. In this paper, we provide insight into the rationale for capital solutions strategies and background on why they are gaining so much traction in the market today. We also describe how we, at Barings, define our Capital Solutions strategy and where we expect to see particular opportunities in the years to come.

The history of capital solutions strategies and distressed debt strategies is almost indistinguishable. A decade ago, even as far back as the financial crisis, these more credit-focused “opportunistic” strategies were almost entirely focused on buying broadly syndicated loans and bonds at discounts for a pull to par trade, or looking for opportunities to restructure a company’s balance sheet and swap debt for equity to achieve targeted returns. But much has changed since then. The massive growth in private credit markets, combined with structural changes in public markets, have created new opportunities to use creative financing structures that go beyond buying discounted public debt or swapping debt for equity. Moreover, while distressed debt strategies of the past often were more appropriate late in the business cycle, the market today offers a compelling range of investment opportunities throughout the entire cycle. The objective of this more comprehensive approach is to generate equity-like returns through a diverse universe of credit opportunities—both public and private—that should be less correlated to traditional equity and fixed income markets.

In terms of portfolio positioning, a capital solutions offering today can be viewed as complementary to existing public and private credit strategies. While much of capital solutions’ appeal results from a potential to generate equity-like returns, its investments largely lie along the credit spectrum and may be more appropriately considered an extension or enhanced variant of traditional direct lending or private credit.

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Bryan High

Head of Global Private Finance

Stuart Mathieson

Head of Europe & APAC Private Credit & Capital Solutions

Michael Searles

Managing Director, Head of North American Investments, Capital Solutions

The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, investment recommendations, or investment research.

In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.

Unless otherwise mentioned, the views contained in this document are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Parts of this document may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any forecasts in this document are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Any investment results, portfolio compositions and/or examples set forth in this document are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this document. No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments.

Investment involves risks. Past performance is not a guide to future performance. Investors should not only base on this document alone to make investment decision.

This document is issued by Baring Asset Management (Asia) Limited. It has not been reviewed by the Securities and Futures Commission of Hong Kong.

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